Friday, May 11, 2007

LBO'S in India in the long term???

The Private Equity Industry in india has ripened to a stage where it needs regulatory legislations so as to accelerate the development of the capital markets in India.
The current SEBI laws do not allow firms to pick up more than minority stakes in Indian entities.The ban on leveraged buy-outs is a constraint, which is the preferred mode of entry for many private equity firms.
Other regulatory obstacles include foreign ownership and investment restrictions, for instance in the aviation and publishing industries, that make departing from this sort of business more difficult.There are cultural barriers where the founding entrepreneur may wish to bring in money and management expertise through PE funds but do not have the appetite for handing over the reins to them.
The recent influx of investors in the stock markets would begin to reduce return which gives a stong case for Private Equity growth in India, though on the flipside PE funds have a history of job sacking and asset stripping realizing huge profits from that.They also have the uncanny ability to takeover businesses at low premiums which might effect investors.These doesnt make things easy for the regulatory authorities and they will find it difficult to give them unmarked access to the Indian markets.
But the real question is that is it the right time to let loose entities who have been labelled by many as 'barbarians'?
On a personal level, i think that the indian markets are not mature enough and still is highly imperfect to sustain a sudden change in the regulatory issues and allow highly risk activities such as LBO'S,which may see a sudden shift in liquidity trends from other AMC'S on the back of global perfomance and may cause a collapse that can trigger financial instability, however i endorse the government taking a stand on this issue and allow such activities over a period of time which will help investors gain more out of the markets and at the same time have the markets realize the cons of getting linked with these funds.The top private equity firms have been consistently outperforming the markets elsewhere and i find no reason why they can't produce the same results in India.
Private Equity activities in India reached its peak after domestic funds were able to raise $1.8 bn from the market and foreign funds from Carlyle to Blackstone betting on the markets.
India was the biggest recipient of private equity investment in Asia last year, with 143 deals worth a total of $2.21bn, according to figures from Thomson Financial, the data group.

1 comment:

ilanit said...

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